Originally Posted by
davidI
In case anyone isn't following all of this GME business, I put together a quick summary for a Facebook post:
[FONT="]$GME is the Financial story of 2021 so far. Quick recap for those not following:
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[FONT="]1. GameStop was shorted 136%. i.e. people (mostly by hedge funds, such as Melvin Capital) borrowed and sold more shares than are in existence hoping they could purchase the shares back at a lower price in the future. Basically, betting the company would fail.
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[FONT="]2. Retail traders on r/WallStreetBets (Reddit) collude to buy stocks and squeeze short investors. Being naked short means potentially unlimited losses so the hedge funds need to buy stock in order to cover their borrowed stocks (which they've sold) which further drives up the price.
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[FONT="]3. Retail traders on r/WallStreetBets also buy a lot of out-of-the-money option calls to create a gamma squeeze. Call options give the buyer the right to buy 100 shares at a specific price up until a specific date. The sooner the date, the more the price is away from the current price (out-of-the-money) and the less volatility the stock has, the less the cost of buying call options.
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[FONT="]No one selling call options would have predicted the stock price to go up 800% over a week based on implied volatility so option contracts that were way out of the money were very cheap. Therefore, people picked up option contracts for 1000s of shares for hundreds of dollars. One guy (u/deepfucking value) bought 500 contracts (i.e option to buy 50,000 shares) up until April 16 with a strike price of $12. Those option contracts cost him $0.20 and are now worth $335.55 each for a gain of 163,257% (or $16.7MM). He made over $10MM on those option contracts yesterday.
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[FONT="]The thing is, the people who sold those call options need to be able to sell the shares if the person who bought out-of-the money now has in-the-money options. Therefore, they need to buy the shares to sell and cover their potential losses. That is called a gamma squeeze.
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[FONT="]So the redditors were genius in applying both a short squeeze and gamma squeeze at the same time.
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[FONT="]4. CNBC and Wall Street players come out claiming it's all unfair and blah blah blah despite the fact they've colluded in backrooms and private chat to do the exact same thing for the last 50 years.
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[FONT="]5. Elon Musk, Chamath Palihapitiya, and a few others support the Main Street guys squeezing the Wall Street guys. CNCB cuts the interview with Chamath they shared online because Chamath embarrassed CNCB and isn't playing for team 0.1%.
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[FONT="]6. Brokers start restricting trade or not even allowing retail investors to trade.
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TLDR; markets are corrupt and a bunch of Redditors have banded together to fight a financial revolution. Sharpen the guillotine!!!
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